Working Paper: CEPR ID: DP899
Authors: Oded Hochman; David Pines; Jacques-François Thisse
Abstract: We show that space matters in designing the optimal provision of local public goods (LPGs). Geography imposes particular institutional structure of local governments due to the overlapping of market areas associated with different LPGs. The optimum can be decentralized through local governments that have jurisdiction over market areas of all LPG-types. This implies that the appropriate suppliers of LPGs are metropolitan approach invalidates the prevailing theory of fiscal federalism, according to which a layer of government should be established for each type of LPG.
Keywords: local public goods; metropolitan governments; land rent; transportation costs
JEL Codes: H11; H72; R51; R53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Geography influences the design of local government structures (H10) | Optimal provision of local public goods is decentralized through metropolitan governments (H73) |
| Geographical factors (R12) | Optimal provision of local public goods (H41) |
| Decentralization of services (H77) | Local governments can better respond to the needs of their residents (H70) |
| Local governments select attributes of LPGs (H70) | Households choose consumption patterns based on these attributes (D10) |
| Without appropriate governance structures (H11) | Competition among local governments can lead to inefficiencies (H73) |